Shopify (shop 2.19%) Shares managed a positive end to a negative year. Shares rose 11% in the last six months of the year, beating a 1.4% gain S&P 500 At that time, according to the information provided by S&P Global Market Intelligence. The e-commerce specialist still trailed the market for the full period of 2022 with a painful 75% drop.
The rebound in the second half came as investors became less wary of a brutal downturn on the way for the e-commerce industry as early as 2023. That helped Wall Street find more reasons to like tech stocks in general in late 2022.
Shopify helped the cause by showing signs of steady sales growth in late September. In fact, revenue rose 24% in the third quarter after accounting for changes in currency exchange rates.
The company had some other key wins in the final months of the year, including rising subscription revenue and greater adoption of its merchant services. Those gains boosted Wall Street’s mood about the business heading into the key holiday shopping season.
Yet Shopify is still reeling from a combination of sluggish growth and rising costs. Operating losses reached 25% of sales in Q3, compared to the 15% loss the company reported in the previous quarter. Executives caution that it will take time to reduce spending in line with the slower growth profile. The net loss trend is expected to improve in 2023.
Investors will learn more about the timing of that earnings rebound when Shopify announces its fourth-quarter results in mid-February. That report will show whether sales during the holiday shopping season were strong even as the company worked to cut costs. Sales on its platform rose a robust 19% on Cyber Monday.
The big question facing investors is whether the sharp shift in demand away from e-commerce in 2022 will continue in 2023 and beyond. The bullish thesis for the stock hinges on a steady march for digital sales as a percentage of all retail spending, which occurred in the years leading up to the pandemic and accelerated in its earlier phases.
Shopify could continue its positive momentum in 2023, but only if Wall Street sees evidence that the company is moving toward profitability while growing its sales footprint. Watch for signs of these improvements, potentially starting with the company’s Q4 report in just a few weeks
Demitri Kalogeropoulos has a position at Shopify. The Motley Fool has positions and recommends Shopify. The Motley Fool recommends the following options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify. Motley Fool has a revealing policy.